The biggest problem facing small business owners is no longer the labor shortage — it’s inflation. That is according to a December 2021 survey release by the NFIB Research Foundation. Shortly after the release of this survey, inflation clocked in at 7 percent over the past year, the highest measure of the Consumer Price Index (CPI) since 1982. In reaction to this problem, I suspect that the Federal Reserve will combat higher prices of goods and services. Up until now, the Fed has been comfortable letting inflation run above its target of two percent. A month ago, I predicted “at least…
Insights & Advice
Tag: inflation
Beware the hikes of March
There is a more than an even chance that the Federal Reserve Bank hikes interest rates at least 25 basis points by the end of March 2022. Several analysts expect another three hikes by the end of the year. As an equity investor, this should concern you. This week, both the Consumer Price Index (CPI), and the Producer Price Index (PPI) came in as expected. But “expected” does not mean anything like good on the inflation front. On a year-over-year basis, CPI was up 7%, while PPI hit 9.7% for all of 2021. And while economists debate whether inflation and…
Fed’s meeting notes throw markets a curve
Investors were set back on their heels this week (January 3-7) after reading the latest member comments from the Federal Open Market Committee’s December 2021 meeting. It suggests that the Fed is prepared to tighten far sooner than most expected. Members seemed to say that the Federal reserve bank central bank was prepared to shrink its $9 trillion balance sheet “much sooner and faster” than anyone expected. This is in addition to the already-announced plan to reduce its asset purchases faster than they first planned. Couple that with expectations that we could see three interest rate hikes this year and…
The top financial searches of 2021
The thing about investing is that it’s a lot easier to look back than forward. I will take the easy way out and talk about what was interesting in 2021. The website Investopedia has more than 20 million monthly readers. As you likely concluded by the website’s name, it draws a more investment-centric crowd than Google. Investopedia identified the most popular investment terms of 2021. I’ll list them and give my thoughts on why they were so popular. Were any of these compelling to you last year? Capital gains tax: Last year, investors were trying to determine if they should sell assets and…
Markets are heading for trouble
The continuing volatility in the stock market is troubling. It is likely signaling difficult times ahead as early as January or February 2022. As such, it is time to consider risk management. After more than a decade of steadily rising equity prices with few interruptions, investors have been lulled into believing that investing in stocks is a riskless game of never-ending profitability. Newcomers to the stock market arena, like your typical Robinhood investor, have been using stocks to supplement, or even replace earned income. Unfortunately, I believe we are entering an environment where the investment themes are changing to our…
Has inflation hit its peak?
The Consumer Price Index (CPI) is an often-used gauge of inflation in the U.S. economy. On December 10, 2021, the CPI rate was a blistering 6.8 percent year-over-year (YoY), more than triple the Federal Reserve’s 2 percent target and its highest level since 1982. Even though energy takes up less than 8 percent of the typical household expenses, it accounted for 30 percent of the YoY gain. Vehicles, shelter, and food were the next biggest contributors to the CPI. Along with energy, those four inputs represent almost 61 percent of consumer purchases but account for 81 percent of the YoY…
All eyes on the Fed
The stock market snapped back from the brink this week and recouped the losses suffered since Thanksgiving. In the coming week, investors will switch their focus on just how much and how soon they can expect monetary policy to tighten. In the meantime, we have had some good news. The Omicron variant of the coronavirus seems to be less serious than first feared. Existing vaccines, according to some drug companies, should be able to handle this mutation with an added booster shot. In the U.S., those booster jabs are already working through the population. That should shore up any worries…
Holiday spending expected to stay strong
Despite the recent scare caused by Omicron, the new coronavirus mutation, retailers are hoping consumers will continue spending in December 2021. I like that bet. The National Retail Federation (NRF) is expecting a record holiday season totaling a take of between $843 billion and $859 billion in revenues throughout November 2021 and December 2021. That would be a record year for retailers such as Target, Walmart and Amazon. Time is running out, however, given that we have less than three weeks to go until Christmas Day. Remember, too, that the shopper began picking up gifts earlier than normal this year…
Markets get smacked
Most investors blame the discovery of a new, possibly more virulent mutation of the coronavirus for the decline in stocks this week. No doubt there is some truth to that, but equally as important was the change in monetary policy enunciated by Jerome Powell, the chairperson of the Federal Reserve Bank, this week. Readers have seen the S&P 500 Index decline by about 4% since the Thanksgiving week. The announcement that a new COVID 19 variant, dubbed Omicron, had been discovered in Africa surprised the investment world. Friday, November 26, we saw a substantial 2% downdraft in the financial markets….
The hawks return
On Tuesday, November 30, during testimony before the U.S. Senate Banking Committee, Jerome Powell, Chairperson of the Federal Reserve bank, did an about face on monetary policy. Powell appeared to take on a new mantle, that of the nation’s chief inflation fighter, casting aside his former dovish stance towards continued easing of monetary stimulus. Investors are asking “what changed?” “We’re now looking at an economy that’s very strong and inflationary pressures that are high,” Powell said. He went on to say that it might be “appropriate to wrap up our purchases a few months earlier.” Powell was referring to the…
Thanksgiving post-pandemic
Consumers are making up for last year’s subdued Thanksgiving holiday. Air travel has jumped. Traffic on the roads is expected to be heavy. Grocery stores are crowded, and families are getting back together again all over the country. Hurrah! As most readers know, last year’s holiday was a bit of a dud largely because of the pandemic. Fewer people travelled. Instead, many of us decided to play it safe. Across the nation, family members decided to remain home, avoid the possibility of contagion, and postpone celebrating together until this year. That was a smart decision. In the meantime, the coronavirus…
When will supply chain issues ease?
August 2022. Thank you for coming, everybody. Don’t forget to tip your waitstaff. Oh, you came for more than just the punchline? Well, pull up a chair and listen to me weave an oxymoronic tale of educated speculation. (“Educated speculation” — patent pending on that phrase.) I went to college in the early-to-mid 1990s. Back then, the study of economics was based on Adam Smith’s “invisible hand,” the unseen force that guided our short- and long-run decisions to maximize our financial outcomes. In the 1990s, I was told that I could eat all the candy and bread I wanted and…
Market’s week of indecision
Stocks and bonds traded in a tight range for most of the week. Some stocks were rewarded, while others punished, based on their earnings results. The U.S. dollar hit a series of new yearly highs, and just about everyone is waiting for President Biden’s pick to head the Federal Reserve Bank. That announcement could come as early as this weekend. Chairman Jerome Powell’s term will end in February 2022. He is a Republican, picked by former President Donald Trump. He had a somewhat rocky relationship with the ex-president but did manage to maintain the independence of the central bank despite…
Annual inflation hits 30-year highs
The stock and bond markets knew inflation was coming. This week’s 6.2% jump in the Consumer Price Index drove home the fact that inflation has become a fact of economic life, at least for the near future. The jury is still out on whether inflation will prove to be “transitory” as the Federal Reserve Bank argues and as some economists believe. Others fear that we could be on the verge of something a little more serious. The fear is that the Fed might be forced to raise interest rates if that were the case. The Producer Price Index (PPI) and…
The vicious cycle between energy and food prices
Rising prices at the gas pump, combined with soaring shopping bills at the supermarket, are having a noticeable impact on the consumer’s pocketbook. But what’s worse is that higher prices in oil beget higher prices in food in the future. Here’s why. Historical economic studies tell us that energy prices have a significant impact on food prices, with 64.17% of changes in food prices explained by the movement of oil prices. But that only tells half the story. As energy prices climb, inputs to farm production are also impacted. Fertilizers, for example, account for between 33% to 44 % of…
Good earnings support markets
Third quarter earnings have cheered investors, sending markets to new highs. The bullish wave of buying was so strong that investors ignored the disappointing third quarter read on the nation’s Gross Domestic Product (GDP). Economists were looking for the economy to grow by 2.6%, but instead, GDP gained a mere 2%, which was the slowest rate in over a year. Economic activity was damaged by the Delta variant as well as continuing supply-side constraints. The market’s reaction indicates that investors are looking through the weak number and expecting the economy to continue to grow. It seems to be a question…